Phillips 66 Conoco gas service station, Princeton, New Jersey, 2019.
Zhi Qi/Dreamstime.comConocoPhillips will probably not fully rebound until oil prices swing higher, but it has a solid dividend that benefits investors in the meantime. The stock, which has fallen into a second slump amid the latest Covid-19 resurgence, could rise to $44 from a recent $29, according to Bank of America analyst Doug Leggate, who upgraded shares to Buy from Neutral on Monday.
Conoco (ticker: COP) shares were up 3.3% on Monday. They now have a dividend yield of 6%, better than the rest of the industry aside from majors like Exxon Mobil (XOM) and Chevron (CVX). And Leggate is confident that the dividend is safe.
Conoco also has opportunities to improve. It’s already the largest independent oil and gas producer in the U.S. and it’s about to get bigger. The company agreed last month to buy Concho Resources (CXO), a Texas-based producer that’s known as a shale driller. Leggate likes the fact that Conoco can cut costs and sell assets after the acquisition, making the company more efficient. Conoco said on its earnings all last week that it expects the deal to close in the first quarter of 2021.
“Our strong balance sheet plus free cash flow generation means we’re even better positioned to give investors what they want from this business, returns of capital,” said Conoco CEO Ryan Lance on the company’s earnings call.
Even before the Concho deal, he thinks Conoco has a particularly low break even price to cover its capital expenditures and dividend. He estimates that the company can produce enough operating cash flow to break even at West Texas Intermediate prices of $41.
Right now, oil prices are below that level. West Texas Intermediate futures were up 0.5% on Monday to $35.98. But Bank of America sees prices rising in the coming months, averaging $44 in the fourth quarter of this year and $47 in 2021.
Write to Avi Salzman at avi.salzman@barrons.com
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November 02, 2020 at 11:36PM
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ConocoPhillips Investors Get Paid to Wait for Oil Rebound - Barron's
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